The Guernsey government has announced that it will revise its Section 157E pension scheme structure in an effort to have it recognized by the UK tax authority as a Qualifying Recognized Overseas Pension Scheme (QROPS) that can accept both resident and non-resident taxpayers.
UK taxpayers can transfer their pensions on a tax-free basis to QROPS when looking to permanently take up residence in another country. However, following an ill-communicated rule change implemented by the UK tax authority, HM Revenue and Customs, on April 6, 2012, the majority of Guernsey's domestic schemes lost their QROPS status. The rule change has meant that QROPS can now only be offered in the territory in which the UK taxpayer is newly resident.
Guernsey's response, announced recently by Guernsey Treasury Minister, Gavin St. Pier, would revert the island's Section 157E pension structure back to its pre-existing form - undoing amendments aimed at complying with the new rules - but would add new taxing provisions on pensions transferred by non-residents to ensure equitable taxation between resident and non-resident persons.
According to St. Pier, the plans would involve income from occupational pension schemes being taxable for non-residents as well as residents, by removing the exemption for pensions and annuities paid in respect of services performed wholly outside Guernsey. The payer of a pension or annuity would be required to deduct tax whether or not the recipient is resident in Guernsey and whether or not the services which led to the payment of that pension or annuity were performed in Guernsey.
Secondly, a legislative amendment will remove the exemption from tax on annuities and lump sums paid to non-resident members of approved retirement annuity schemes and retirement annuity trust schemes. This will mean that such annuity income or lump sums will be taxable on the same basis as if paid to a resident of Guernsey, albeit subject to Guernsey provisions that allow for the exemption of certain lump sums from taxation.
Rex Cowley, principal of the Jersey-based New Dawn Consultancy told International Adviser that in essence the plans seek to enable Guernsey to "potentially tax all payments from a Guernsey pension at the domestic rate of tax, ie, 20%, but allow an exemption on certain lump sum payments, in order to create the ability to revive a tax free [benefits commencement] lump sum, ie, 30%. The net result is 20% tax on pension income, with a 30% tax free lump sum, irrespective of the member's residence.”
The changes are to be brought before the island's legislative assembly, the States of Guernsey, in September, but, if adopted, will have retrospective application from June 27, 2012.
The government has confirmed that provision would be made to ensure no retrospective impact on schemes being managed on behalf of non-residents who transferred their UK pensions to Guernsey prior to the rule change.A comprehensive report in our Intelligence Report series titled "The Lowtax International Pensions Report" which has an in depth view on The Mechanics of Pensions Provision, 'High-Tax' Country Pension Regimes and 'Lowtax' Jurisdictions In Which To Locate Pensions Savings, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report14.asp
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